Friday, September 8, 2017

Supply-Siders Gaining Influence at the White House; A Potential Big Plus for Taxpayers

Larry Kudlow having private talks with the president.

Supply siders are generally pretty good on tax cuts but terrible on spending cuts.

They are best known as advocates of the Laffer curve.

For the record, the Laffer curve which was famously drawn on a cloth napkin (below) by Arthur Laffer while having dinner with Jude Wanniski, Donald Rumsfeld and Dick Cheney in September 1974.

With justification, Murray Rothbard used to attack supply-side economics and the Laffer curve:

Supply-side economics tends to go in and out of favor. Republicans are often big supporters because, as Rothbard notes above, it tends to square the circle for them. It purports to show how government can cut taxes, continue to keep large government expenditures in place and somehow not increase the deficit. It's Houdini antics with Laffer instead of a showgirl.

Anyway, supply-siders have recently wiggled their way into the White House, which curiously enough, is currently the residence of a showman.

In tax reform, the negotiators from the Trump administration and Congress who are thought to be in charge are called the Big 6 by Washington insiders. But there’s also a Big 4, a group of supply-side economists who are playing an influential role.

The Big 4—they call themselves the Committee to Unleash Prosperity—have no official status. They don’t need it. They have something better. President Trump knows all four and likes to talk to them about the economy and taxes.

And things seem to be heading their way. With time running out for Congress to consider a massive tax bill, the Big 4 want Trump to go for tax cuts alone this year and leave reform of the tax code to 2018. The Big 6 remain committed to enacting both cuts and reform this fall.

One of the Big 4, Larry Kudlow, was invited several weeks ago to speak at a White House luncheon by Gary Cohn, the head of the National Economic Council. Trump didn’t attend, but when he heard Kudlow was there, he summoned him twice for private chats. They talked for 45 minutes.

The president has also been known to ask “Where’s Laffer?” when the subject of taxes comes up. Art Laffer was an architect of President Reagan’s tax cut, which touched off a surge in economic growth in the 1980s. He has met repeatedly with Trump.

I am highly suspicious of any tax "reform" that would come out of the Trump administration. It would only be taxation from new angles and no serious cuts. But if the Big 4 can talk Trump into focusing on tax cuts this year and "reform" down the road, this would be a big win for taxpayers.

As for government expenditures shrinking, or coming under control, forget about it. Spending is going to mushroom into a financial nuclear cloud. At least with tax cuts, we will have more funds to hedge against a financial nuclear winter and that is the best we can hope for at this time.